A Power of Attorney (POA) is often used in Estate Planning, Business and Real Estate transactions. The creator of the POA, called the "principal" gives someone else, called the "agent" the authority to sign on behalf of the principal and bind the principal as if the principal had signed.
On September 1, 2010, Wisconsin’s new POA statute, Chapter 244, Wis. Stats., became effective. The new law does not change the validity of existing POA’s, but expanded on and clarified much existing law surrounding POA’s.
The law now sets forth rules regarding reimbursement and compensation of agents. It sets forth agent duties and rules. Beyond that, the two most significant changes are:
- a POA now becomes effective upon execution, unless otherwise stated in the POA; and
- all new POA’s are durable, unless otherwise stated.
Durable POA’s continue to be effective, even if the principal making the POA becomes incompetent.
POA’s are useful in estate planning, because they allow changes to occur after the principal becomes incompetent. Such changes may have the result of protecting assets and thereafter qualifying the principal for Title 19 benefits. Wisconsin law permits the agent to make such changes, but only if the power to do is is expressly set forth in the POA document. Likewise, any other act by which the principal’s estate may be used, including self-dealing by the agent, must be clearly set forth in the POA.
Even when the principal gives the agent the power to make gifts or diminish the principal’s estate, the law limits such gifting to the annual federal gift tax exclusion amount per donee, unless specific language expands such limit. In addition, the agent must make such gifts "in the principal’s best interest." The factors to determine such "best interest" are:
- the value and nature of the principal’s property;
- the principal’s foreseeable obligations;
- the principal’s need for maintenance;
- minimization of taxes;
- eligibility for a benefit, a program, or assistance under statute, rule or regulation; and
- the principal’s history of making gifts.
All POA’s include obligations for the agent to act in good faith, within the scope of his authority, and following the principal’s expectations. These cannot be altered in the POA. However, obligations related to loyalty, recordkeeping, accounting, durability, effective date and scope may be altered by the document’s language. Consequently, in business and real estate transactions, it may be preferable to use language that limits the agent’s powers to the transaction at hand, rather than provide wide, general powers.
The new Wisconsin law, following the Model Act, brings Wisconsin in line with other jurisdictions who have taken a more modern approach to the issues being solved by using POA’s. While somewhat complex, they can be drafted to provide for actions being taken on behalf of a person by someone else when the need arises.